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Stock Pickers' Market - Rewards and Risks

Tuesday, the DJIA and S&P 500 rebounded impressively, but it was the Nasdaq Composite and Russell 2000 that stole the show, recouping all of Monday’s loss.

Yesterday, all four “gapped” at the open, reflecting an urgency to jump on board.

There was little follow through for the DJIA and S&P 500, but the Nasdaq and Russell 2000 maintained an upbeat tone throughout the day.

The message here is the Street is reaching out for greater performance and willing to take more risk.

Appetites have been whetted by nearly 5 years of monster gains in the market averages, as the bull market climbed a near vertical wall of worry.

With those worries mostly a matter of history, the Street is not ready to call it quits. CONCLUSION:

The S&P 500 is up 177% and Nasdaq Comp. up 233% since early March 2009 with more to come. But, the big gains remain not in the general market, but in individual stocks.

This suggests a stock pickers’ market, more than an ETF market, but with much greater risk.

The risk of a Q1 correction is still there, as explained below, butthis week’s rebound suggests the burden of proof is now on the bears. If this is going to happen in January, they have their work cut out for them.

TODAY:

Q4 earningswill be reported in coming weeks, along with the dreaded changes in broker ratings and estimates for coming quarters. Expect sharp moves both ways.

Expect volatility to pick up as stocks react to earnings surprises and disappointments.

Selling by investors opting to put gains into 2014 should be easing, but new monies will be put to work by institutions.

Resistance is DJIA: 16,538 (S&P 500:1,855)

Support is DJIA: 16,418 (S&P 500: 1,839)

Investor’s first read– a daily edge before the open

DJIA: 16,481

S&P 500: 1,848

Nasdaq Comp. 4,214

Russell 2000: 1,170

Thursday, Jan. 16, 2014 9:20 a.m.

I AM REPEATING THE FOLLOWING TO MAINTAIN AN AWARENESS OF THE POTENTIAL FOR A Q1 CORRECTION.

Best Six Months to own stocks:

Over the years the Stock Trader’s Almanac* has expounded on its significant finding that the stock market performs better between November 1 and May 1 than between May 1 and November 1.

The Almanac’s “Best Six” goes back to 1950. The six months is a snapshot between November and May. Many major market advances often start before November, but the point made here is the period between fall and May is where the action is.

Is this going to be another “BEST six months to own stocks ?

The six months between November 1 and May 1, have consistently outperformed the six months between May 1 and November 1.*

With a 7.3% rise in the DJIA since October 31, the Street is now wondering if the market is off to yet another “Best Six Months.” Out of the last 25 years, Nov.1 to May 1, have produced 19 up-years, 3 flats and 3 downers. The best years averaged gains of 11.8% with the best up 25.6% (1998 – 1999).

THE DANGER: over the last 25 years, there have been 14 corrections ranging between 6% and 16% during this November1 to May1 period. Seven of those started in January, two in December and four in February.

TIMING – OPPORTUNITY STOCKS

The following are based on technical analysis only and are not to be taken as buy or sell recommendations, but as one of many factors that must be considered in the decision process. Comments do not take into consideration earnings reports, or changes in institutional ratings, company guidance. Technical analysis is based on one’s interpretation of the impact buying and selling have on the price of a stock and is therefore not an exact science. News and events can change an interpretation instantly.

Apple (AAPL: $557.36) Positive

Needed a big buyer to reverse its 12-day slump. It got that Monday (in a bad market), Tuesday and yesterday, as well. Support: $553

Friday’s attempt to breakout was reversed by big market drop Monday. Stabilized Tuesday and Wednesday. Of interest here is the 12% jump in the Mortgage Bankers’ Applications for the week ended Jan. 10. Refis were also up (11%). The average rate for conforming 30-year mortgage ($417,000 or less) fell 6 basis pts. To 4.72 pct. Granted it was one week in a new year, but I haven’t seen any press on this.

First Solar (FSLR:$51.99)Negative

No change. Goldman Sachs really skewered this one when it downgraded it to a sell from a buy. Broke support at $51 and found some buyers north of $49, but needs big buyers to turn the corner. Is up two days in a row. That’s happened twice since its 52-week high of $65.99 in early November. Resistance is formidable at $52 - $53.

Stabilized above $138 Tuesday but ran into a seller yesterday in the $145 area and gave back all of its gain for the day . That suggests a test of Tuesday’s low of $138.58

Amazon (AMZN: $396.87) Positive

Rebounded Tuesday, but no follow through Wednesday. Must get through resistance at $399 to have a shot at a new 52-week high $406.89. Booooring

Pandora Media (P:$35.05) Positive.

Stock has been responding to positive “listener” data news for 2013 year. Tuesday was a rebound day, yesterday a breakout to a new 52-week high of $35.48.

NEW !NEW ! NEW ! - Technical Analysis ALERT list

The following is a “Technical” alert list, stocks that have indicated an improved technical pattern. I will not follow up in detail like the stocks above. These are not buys or sells, but simply alerts that their technical pattern is improving. Normal intraday fluctuations can offer a lower price than that listed here. Positive patterns can be interrupted by corrections.

Warning: An improving technical pattern can be reversed instantly by negative commentary from the Street, broker downgrades, etc. These are “snapshots” at a given time. Good timing can target pinpoint lower prices in some cases. Most stocks are technically attractive because they sketched out a positive upbeat pattern. Some will be because they are showing signs of rebounding from a depressed condition. If after additional due diligence you decide to buy any of these stocks, always protect yourself with a stop cell in line with your tolerance for risk.

NOTE: Monday’s market plunge adversely impacted most of the technical attractiveness of the following stocks, but all except Cardtronics (CATM) stabilized or rebounded sharply. Yesterday, I have noted price levels where I thought these stocks should encounter buying (support). But the intensity of the weakness in the overall market can take them much lower. While lower prices can make a stock more attractive, a decline can be a way station en route to yet lower prices, especially if the overall market is in a tailspin. A break below these support levels can eliminate a stock from this list. These stocks were demonstrating technical strength before Monday’s slump, so they could rebound sharply. So much now depends on what the overall market does.

While the number of economic reports is light, there are several key ones, especially those for housing.

For detailed analysis of both the U.S. and Foreign economies along with charts, go towww.mam.econoday.com. Also included is an explanation of each indicator. If you want to know when the next Employment report or any other key report will be released that info is also there under “event release date.”

The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk. Brooks may buy or sell stocks referred to herein.

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